How much money do you need to be financially independent?

Americans say they'd need to earn about $94,000 a year on average to feel financially independent. That's about $20,000 more than the median household income of $74,580.

At what age do most become financially independent?

Among the key findings: 45% of young adults say they are completely financially independent from their parents. Among those in their early 30s, that share rises to 67%, compared with 44% of those ages 25 to 29 and 16% of those ages 18 to 24.

What are the 5 pillars of financial freedom?

The five pillars of financial planning— investments, income planning, insurance, tax planning, and estate planning — are a simple but comprehensive approach to financial planning.

Can I retire at 55 with 300k?

On average for a comfortable retirement, an individual will spend £43,100 a year, whilst the average couple in retirement spends £59,000 a year. This means if you retire at 55 with £300k, an individual will run out of funds in approximately 7 years, and a couple in 5 years . So, on paper, it doesn't look like enough.

How do I declare myself financially independent?

To prove your financial independence, you must be able to document that you have been totally self-sufficient for one full year prior to the residence determination date , supporting yourself, for example, through jobs, financial aid, commercial/institutional loans in your name only, and documentable savings from your ...

Can you retire with 500k at 40?

The short answer is yes, $500,000 is enough for many retirees . The question is how that will work out for you. With an income source like Social Security, modes spending, and a bit of good luck, this is feasible. And when two people in your household get Social Security or pension income, it's even easier.

What is the 50 30 20 rule?

The 50-30-20 rule recommends putting 50% of your money toward needs, 30% toward wants, and 20% toward savings . The savings category also includes money you will need to realize your future goals.

How long does it take to become financially independent?

Common personal finance wisdom says to save 10% of your earnings with every check, but you'll have to get much more aggressive than that to achieve financial independence in just a decade. “Aim to save a significant portion of your income, at least 50% if possible,” Standberry said.

What age do people peak financially?

Peak earning years are generally thought to be late 40s to late 50s *. The latest figures show women's peak between ages 35 and 54, men between 45 and 64. After that, most people's incomes typically level off. Promotions favor younger people with longer futures*.

How many people are financially free?

SAN MATEO, Calif., Aug. 22, 2023 /PRNewswire/ -- Despite most Americans having modest expectations of what it means to attain financial freedom, just 1-in-10 (11%) report they are living their definition of financial freedom, according to a new survey by Achieve, the leader in digital personal finance.

What is a financial goal which can be achieved in 5 years?

Mid-term goals . These can be done short-term but often take up to five years. Examples would be paying off credit cards or loans and saving for down payment on a house.

What is the 4 rule for financial freedom?

The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after . The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.

How to Become Financially Independent in Five Years

Back in October I was part of a panel discussion on the What’s Up Next? podcast.

Three of us “older” bloggers joined Doc G and Paul to discuss the subject “Is it ever too late to pursue financial independence?”

The episode will soon be released but if you want to hear what we had to say, you can listen to it here now.

In the discussion Doc asked a GREAT question (which I’ll paraphrase):

Let’s say you had to begin your journey to financial independence today. Your net worth is reduced to zero but you retain all the knowledge and skills you’ve accumulated through the years. How long do you think it would take you to reach financial independence?

What an awesome question, right?

Oh, and he gave me no heads up on it, so I had to answer off the top of my head.

My response was basically as follows (again paraphrasing):

I didn’t really get started on any sort of financial path until I got married when I was 27.
Going back and running our specific financial numbers, I found out we actually achieved financial independence (FI) when I was 42.
Given that span, it took me 15 years to reach FI.
During that time, I made a lot of mistakes since I was learning along the way. As a result, it took me longer than it should have to reach FI. Hopefully I wouldn’t make those same mistakes again if I was starting now.
In addition, my income potential is much higher now in my mid-50’s than it was at 27, so I should be earning more.
And I have a lot more financial knowledge now about what to do to become wealthy than I did then.

So with all those points factored in, I said I thought I could reach FI in ten years.

Even as the podcast was being recorded, I thought “I am totally going to do a post on that and see if 10 years is high, low, or on target.” This is that post!

I wanted to write this post for a couple reasons:

To lay out what I would do if I had to start over and see how long it would take for those steps to get me to FI.
Give hope (as well as a roadmap) to those who may be starting the path to FI a bit late — to show them you don’t need 30 years to become FI.

But before we get into the details, let me share some general guidelines/thoughts that will guide us.

Estimating a New Financial Independence Path

Here are a few thoughts on what I’ll be doing as I attempt to estimate my new path to FI:

These are my numbers. Your numbers will be different. That’s what makes personal finance personal.
That said, the process will show a general guideline for how to think about FI and plan a way to get there. So don’t discount the numbers simply because you “can’t” do this or that, because my numbers are higher/lower than yours, etc. Read the post and try to get out of it what you can to make your finances better.
Not surprisingly, my plan will focus heavily on making the most of what I earn, save, and invest. That’s kinda my theme. Plus it worked the first time getting me to FI, so I’m sticking with it. 😉
At the end I’ll offer some suggestions for what others might consider in case they have lower income, higher spending, started later, etc.
I will try to be conservative in all my estimates. I use accurate, solid numbers whenever I have them, but in many cases I give myself a handicap by over-estimating costs and under-estimating income. This means my actual results could be better. It also means I have several margins of safety built into my plan (I’ll highlight these as I go along).

Ok, with that out of the way, let’s get to it…

The FI Target

As I explain in my e-series “Creating a Great Retirement“, step 1 in any plan to reach FI (or retirement) is to determine the spending you’ll need to cover all your expenses.

To do this I started with where my budget is today. From there I will use my experience as well as 25 years of data in Quicken to guide me. 🙂

Looking at the past 12 months of spending (FYI, I’m writing this post in October), here’s how our expenses break down:

Giving: $51,744
College: $35,810
Taxes: $25,169
Travel: $19,788
Personal: $8,537
Food: $7,868
Car: 7,366
Utilities: $6,808
Christmas : $5,537
Medical Insurance: $5,092
Medical: $4,572
Reimbursed: $4,453
Misc: $3,976
Entertainment: $3,305
Eating Out: $3,186
House Insurance: $2,740
Car Insurance: $2,396
Home Repair: $2,188
Clothes: $1,949
Furnishings: $1,806
Life Insurance: $848
Gas: $811
Car Repairs: $134

Total: $206,083

Ok, so obviously we are living large. LOL!

But it’s not as large as it might seem since there are unique ways Quicken and I assign “costs” — based on how I enter the numbers. I was an accounting major for the first two years of undergrad so I know how to work the numbers. 😉

My guess is that our “real” spending is around $90k, which is still high compared to my adjusted total for last year (mostly because of travel costs).

ESI Budget Review

Let’s go through each category/number, describe them, and set a new budget number I’d use for my FI budget.

Giving: $51,744

As you know, giving has been a big part of our financial journey. When working on FI version 1 we still gave 26% of our gross income away. Yes, I do practice what I preach.

I wouldn’t sacrifice giving in FI version 2, so it’s going to be part of our budget for sure.

That said, the “spending” number above is especially large because it represents assets given to our donor-advised fund. To be clear, nothing is given out of income, but from assets (we donate appreciated index funds to avoid the capital gains and maximize giving.)

Obviously, if we were at zero assets and trying to reach FI, we’d cut back in this area. The minimum we’d ever want to limit giving to is 10% of our gross income, so once we get to the income section, we can figure this number.

Annual cost: TBD

College: $35,810

This was the final payoff to our daughter when she graduated plus a few other expenses. It was offset by a fake liability I had set up in Quicken, so the net worth change to “pay” it was zero.

Obviously we wouldn’t have this cost again, so it goes to zero in the new FI budget.

This is one advantage to trying to reach FI at a later age — the kids are likely gone and you’re done with their expenses (we discussed this as well on the podcast).

That said, even if I had kids in college I could have a “come to Jesus” talk and let them know they were on their own.

Annual cost: $0

Taxes: $25,169

This one is also going to be highly income dependent, so we’ll save it for the end.

Annual cost: TBD

Travel: $19,788

LOL! I guess Grand Cayman, Florida, and the rest are bye-bye for now.

We could eliminate all travel if we wanted, but that’s probably not realistic.

If we were focused on achieving FI and starting over again, we’d probably go back to spending vacation time with family which is what we did for years. This would mean driving there and back, staying at their homes, etc. so costs would be minimal.

Annual cost: $1,000

Personal: $8,537

These are expenses spent by family members for various “wants” in life. They are accounts that the person can spend without asking anyone for permission/agreement.

For YEARS we had personal budgets of $100 a month for me and my wife. She hardly ever spent hers (I spent mine!) 😉

I’ll assume I could go back to my amount and she’d take half, then we’d split the total between us, each getting $900 a year.

Annual cost: $1,800

Food: $7,868

We don’t watch food costs that closely (as you can tell). Plus we are down one kid now and another leaving soon.

So for my wife and me we could do a TON better here. I think we could get by on $400 a month for food costs fairly easily.

Annual cost: $4,800

Car: $7,366

This is the cost for the car we sold to our daughter as part of her car incentive (the $10 car we got).

It was a one-time “cost” which was offset by a reduction in what we owed her (so no net worth impact).

Annual cost: $0

Utilities: $6,808

This includes true utilities like electricity, gas, and water as well as TV, phone, and internet.

Again, we don’t watch things too closely here (we don’t watch any costs nearly as closely as we did back in the day, as you can tell).

That said, we aren’t wasteful either so we couldn’t save a bunch in our current home.

But, as you’ll see, one thing I’m going to do is downsize my home, which will also downsize our utility costs.

Plus TV can be reduced significantly (I’ll keep my phone and internet as they are). And we could stop paying for phone service for the kids.

So I think we can move from $567 per month to $350.

Annual cost: $4,200

Christmas : $5,537

The big cost here is that we gave five family members $1,000 gifts last Christmas.

Those would be gone.

Annual cost: $600.

Medical Insurance: $5,092

I’m going to have to bite the bullet and go back to work, so I think this category (plus the next one) will go down as I pay lower premiums (since my employer will subsidize them) and have fewer out-of-pocket costs.

It could still be a couple hundred a month for insurance though.

Annual cost: $2,400

Medical: $4,572

These are out of pocket expenses we currently pay, mostly for eyes (I got some cool Oakley sunglasses!) and dental work plus some for physicals and follow-ups not covered. Plus, of course, my regular dermatology check-ups.

My out of pocket with insurance would probably be $1,500 at the most, so I’m going with that.

Annual cost: $1,500

Reimbursed: $4,453

The main “cost” here is estimated taxes that I paid for my daughter which she then reimbursed us through her wedding funds (we deducted what she owed us from the amount we gave her).

So this cost would go away…since it’s not really a cost now.

Annual cost: $0

Misc: $3,976

These are all costs that don’t fit into another category neatly.

For years our costs in this category have been roughly $300 a month and I don’t see that changing.

Annual cost: $3,600

Entertainment: $3,305

The two big costs in this category are 1) membership fees to our gym ($170 a month) and 2) movies and similar outings.

I can’t see giving up the gym altogether, but we could join a cheaper alternative. Plus with my son leaving in January we’ll move from a family plan to a couple plan.

I’ll go with $75 a month for a gym, plus some various money for a movie now and then.

Annual cost: $1,200

Eating Out: $3,186

This number is obscenely high for one reason: I buy gift cards at the store and then give them to my kids to eat out.

Those days are over and we’re on damage control with the new plan.

Eating out goes to $50 a month.

Annual cost: $600

House Insurance: $2,740

It is what it is for a house our size in our market. We price out insurance every other year at a minimum, so I don’t think it can go much lower (in combination with our other insurances — we combine them with one company to get the best overall deal.)

ESI Income Review

The good news: I’m a pretty high earner. Plus with the kids gone, my wife could go back to work.

The bad news: I have to go back to work. So does my wife (she’d hate this). In fact, when I told her I was doing this post and that she’d have to go back to work as part of our effort, she was less than enthusiastic. 😉

I suspect I could get a position for at least $150k a year at a minimum. $200k is more likely (and on the high end $300k is possible if I was running a company). But let’s split the difference and say I could find a job and earn $175k per year. Consider this margin of safety item #1.

That would be base salary. I’d probably be looking at $20k to $40k in bonuses. Let’s go with $30k and say I hit half of the target. So that’s another $15k in income.

My wife was an audiologist when we met and married. Her training and certifications are outdated, so she’d need to ramp them up.

That said, she’s pretty sharp and has good experience, so that wouldn’t take long.

I Googled “average audiologist salaries” and got $75k to $90k. Boom!!!!

I’ll back off on this a bit to factor in the education she’ll need to get (and the time it takes) plus the fact that she wouldn’t want to work full-time if she could avoid it. But we’re a team so she’s in the pit with me. I’ll go with $60k per year for her. Consider this margin of safety item #2.

That brings us to $250k in salary.

That’s our complete source of income at this point, but I would also begin a side hustle immediately. Based on past experience, I KNOW I could create a $25k blog within three years. So we’ll assume zero in years one and two, but $25k in extra income after that.

BTW, $25k is a low number compared to what I think I could do. ESI Money is around $50k annually and I’m not pushing it hard at all. So consider this margin of safety item #3.

I could get my wife to do a side hustle too, but I’ll leave her be for now. I think that would be best for my health. 😉

The Gap

So if we’re bringing in $250k in years one and two and then $275k after that, here are our extra expenses:

Giving (10% of gross income): $25k to $27.5k
Taxes (income plus all other): $65k

On the tax part…I didn’t want to spend 100 hours filling out a mock income tax form so I took an estimate based on the following:

What I’ve paid previously when I’ve made in this range (though the Trump tax cuts would probably lower this amount)
An estimate from an online tax calculator
The fact that historically we spent 21% of gross income on taxes

Given these, let’s adjust the annual budget to $30.7k (costs) + $27.5k (giving) + $65k (taxes) = $123.2k

Note that I’m building in the higher giving level from year one for both simplicity’s sake as well as to serve as margin of safety item #4.

Taking the numbers above, I did a realism check. They have us spending a bit over 10% of income on living expenses.

This is lower than the 17% we saw for 28 years, but our costs should be lower as we’re being more extreme with expenses while driving income. Doing these two things will naturally lower the percentage spent on living costs.

That said, I’ll give myself a handicap and raise the annual costs to 17% of gross income. Consider this margin of safety item #5.

This gives us a new budget of $46.75k (new costs) + $27.5k (giving) + $65k (taxes) = $139.25k.

Given these costs, our gap, the difference between income and expenses, is $110.75k in the first two years and $135.75k in years 3+.

In addition, it sets our financial independence number at $46.75k. These are today’s living costs. Now we could add giving and taxes here, but we over-estimated the costs anyway, so I’ll assume the increase makes up for these. Plus, as you’ll see, we have so many margins of safety built in that we’d be able to cover any cost increases fairly easily.

To get a future cost estimate, I started by assuming it takes us 10 years to reach FI and that inflation is 3%. So in 10 years the $46.75k in costs will balloon to $62.8k.

Moves I’d Make

Now with income and expenses set, we can get to work. Here’s what I’d do to reach FI as soon as possible:

1. Move to a lower cost of living city.

You can’t always control where you live when you’re looking for a job, but if you’re diligent you can do it within reason, and the assumptions we have above make that a realistic idea.

We’d likely move to the Midwest or South and start our efforts in a smaller to mid-sized market/city. This combination would make for a very affordable cost-of-living.

I would be sad to say goodbye to Colorado, but I would do what it took to reach my goal. Also, I know we could find places to live that we’d enjoy. It’s not like Colorado has the market cornered on great living.

The costs that we’d realize by doing this are reflected above. I also think the salary assumptions would hold true as well. As you know, I love the combination of a high salary and low cost of living city, and that’s what we’d work towards.

2. Move into a smaller apartment that we’d house hack.

Welcome to a 900 square foot apartment, honey! LOL!

Actually my wife would probably be more accepting of a smaller place than I would, but I digress.

I think since I have a short time frame to get to FI, growing with index funds is just going to take too long. The one caveat: I would put in enough in my work 401k to get the full company match. I’d be able to get it at 59.5 anyway if I retired and rolled it over to an IRA, so why not get the free money too?

BTW, I’m not counting on any of the free money in my calculations, so consider this margin of safety item #6.

Other than that, the rest of my money would go to real estate — some to private lending and the rest to actual real estate/apartments where I would buy the place, live in one unit, and rent out the other units. Then as that place got paid off, buy another one, and so on and so on.

Basically we’d house hack our way to a mini-version of the “buy 20 houses” plan.

3. Start a side hustle and keep it growing.

I’d begin blogging right away and maybe even get a cool URL like FIinFive (FI in 5 years) or something like that to motivate myself.

I think it would be a pretty cool journey and documenting it online would be interesting. Hopefully readers would think so too. If not, I have some other ideas I could go with.

I’m pretty sure I could make $25k after three years. As noted above I could likely make more than that.

4. I would work my career HARD.

I managed over 8% annual raises when I didn’t know what I was doing for much of the time, so I’m thinking I could at least do that now.

I won’t factor in those gains, but if my salary grew “just” 5%, that would be a substantial amount of extra income.

This said, I won’t assume any salary growth in my numbers, so consider this margin of safety item #7.

5. Keep costs low.

There might be temptation to let up a bit as we made and saved more, so we’d be diligent and keep expenses in line.

I have no doubt we could do this since we did it for 25+ years.

It wouldn’t be fun to go back there, but it’s something we’ve done and could replicate without too much pain.

That’s what I’d do if I wanted to achieve FI as soon as possible.

It’s not a long list at all. I’d simply concentrate on the few things I know I could do well to and focus on them big-time.

Said differently, I’d drive my earnings, save a ton, and invest for FI income. It all comes back to E, S, and I. 🙂

The Results

I could drag out this post with a blow-by-blow, year-by-year accounting, but I doubt anyone wants to read 10,000 words here today.

Plus we’re just getting an estimate, so a general idea of the outcome is fine IMO. It’s enough to get us a close estimate.

Here’s my line of thinking:

We have a gap of $110.75k in the first two years and $135.75k in years 3+.
This nets us $628.75k after five years.
This is assuming no appreciation and no extra income from the places for these five years. In other words, margin of safety items #8 and #9.
This amount is roughly what I bought my rental properties for and they churn off about 10% after expenses. Let’s say I put 75% the money into rental units and 25% in private lending. If we assume a 6% income stream from the rental units (margin of safety item #10) and 10% from the lending, that’s annual FI income of $44k (($628.75 * 75% * 6%) + ($628.75 * 25% * 10%)). By the way, living in a low cost market makes buying rental units like this a possibility.
Couple this with my $25k per year side hustle and we have annual FI income of $69k, well over our TEN-year (even though we’re only five years in) inflation adjusted amount of $62.8k (margin of safety item #11).
This also assumes that the rents for our apartments wouldn’t increase over time, which they probably would (margin of safety item #12).

Looking at our assumptions plus factoring in all our margins of safety, it looks like we would probably reach FI in less than five years, but I’m happy saying it would take half a decade (margin of safety item #13).

How Could Others Do It

I can hear the screaming now from the “but you have a high income” excuse camp.

Or the “there’s no way I could live on that” complainers.

Or the “I’d never invest in real estate” whiners.

As I said earlier, these are MY numbers, not yours. I’m playing the cards I’ve been dealt.

In addition, it really shouldn’t be any surprise that I’d focus on earning a lot, saving a ton, and investing since that’s what I write about EVERY DAY.

And some are sure to point out that I’m still “working” since having a side hustle is part of my equation. I’ve already addressed the retirement police on this subject. Plus, I blog even now and I don’t need the money — I choose to do it because I like it. So I’d probably like it then as well. It just so happens it helps our finances. Seems like a win-win to me.

Don’t Miss a Post

ESI Money is about helping you grow your net worth. The path to get there involves three simple steps starting with the letters E-S-I. You can read more about the site, the author, and keys to becoming wealthy here.

You can sign up to receive ESI Money articles via email or by RSS. For email newsletter subscriptions or RSS updates updates, visit this link.

Comments

Xrayvsn says
December 18, 2019 at 4:40 am
Really great thought experiment and excellent initial question by doc G.
I know I could do it fairly quickly knowing what I know now if I am able to continue my current income. I would off top of my head estimate that 5 years would be around the time for me if the markets etc behave like they have in the past (of course not a guarantee)
Reply
Dee Dee says
December 18, 2019 at 4:58 am
Great article. If someone isn’t interested in real estate, then specifically what other investment would you recommend?
Reply
- ESI says
  December 18, 2019 at 7:21 am
  For what goal? Growth? Income? Something else?
  Reply
MMiguel says
December 18, 2019 at 5:02 am
Interesting… goodness the thought of starting over again from scratch gives me hives just thinking about it. Since I live in a very high cost region it’s hard for me to imagine the low cost of living you describe, but I’ll take your word for it… that it is possible.
The one big assumption that I question is the ability to go back to work and earn big bucks in your mid-50’s or 60’s. Of course, having been a CEO you’re probably way more employable than the average 50-something year old.
I’m also in my mid-50’s and I don’t think it’s my imagination that in the corporate world, mid 50’s to early 60’s is the kill zone. I see lots of job listings I’d me highly qualified for, but I wonder… could I really get those jobs or would rampant age discrimination rear its ugly head even if I were willing to take a big cut in pay and responsibility. Last time I interviewed for an opening, it went to someone 15 years younger with half my experience.
I suspect your response would be something along the lines of “I didn’t say it would be easy.” And you’d be right. It might not be easy, but if I were flexible on location, and high on motivation, there is probably a job I could get (if I weren’t already working) based on my blue chip education and work experience, in a lower cost region, paying enough to execute the ESI plan.
Reply
- ESI says
  December 18, 2019 at 7:24 am
  That’s why I estimated “low” at $175k. Maybe $150k would give me even more buffer.
  Reply
  - Mr. Hobo Millionaire (MI-149) says
    December 18, 2019 at 8:32 am
    ESI, I was going to comment some of what MMiguel said…
    Are you sure at your age (over 50) you could get that same, higher paying, top level position back? I’m not suggesting you couldn’t DO the job… simply referring to age bias by whoever is hiring that you would never get the CHANCE to do it again.
    What specific job/line of work would you be getting hired for?
    Reply
    - ESI says
      December 18, 2019 at 10:42 am
      Am I sure? As sure as I can be about any hypothetical situation with a thousand variables. LOL!
      Actually, I’m pretty sure I could at least hit those numbers if not surpass them. The reasoning:
      1. I was conservative on the estimate to begin with (as noted) compared to my historical earnings.
      2. I have a strong network which has been growing even after retirement. I’m closing in on 2,000 connections on LinkedIn alone.
      3. I am regularly recruited by headhunters for either VP/CMO or president/CEO roles, all paying above what I’ve estimated.
      4. Yes, there is age discrimination. But simply because some are held back because of it doesn’t mean all are held back (of course). I’m willing to bet on myself that I could beat the odds (which is consistent with my past).
      5. I have regularly been told I look like I’m in my early 40’s. If worse came to worse, I could probably write my resume to disguise my age and let the interviewers decide how old I looked. 😉
      Of course you may disagree, but we’re only speculating here. There’s no way to prove it one way or the other.
      Reply
Ted says
December 18, 2019 at 6:50 am
Sam
Your charitable giving always stands out the most to me and I hope others take notice of the importance of it in your life.
“That which you do for the least of these you do for me”….
Reply
MI 110 says
December 18, 2019 at 7:00 am
This is a really great article – very instructive and I’m sure it will be helpful to many people. I enjoyed reading it thoroughly. One major expense item you haven’t included in your costs that I think you may want to include is mortgage / rent. If you had no assets, presumably you’d be renting somewhere, so that would likely change your expense side a bit. And you may decide that you should own a home to lock-in housing costs for the future, which would alter the investment decisions for the person starting from zero. But obviously the principles all work well.
Reply
- ESI says
  December 18, 2019 at 7:25 am
  I’m assuming that the house hack would cover all my housing costs.
  Reply
  - Robert says
    December 19, 2019 at 3:07 am
    How can I do this too? I’m in a place currently that’s around 900 sqft. Rent is 4000/month split 3 ways.
    Reply
    - ESI says
      December 19, 2019 at 9:01 am
      Read the posts I have linked above in that section to get a start.
      Reply
MI-94 says
December 18, 2019 at 8:55 am
Great article. Your level of charitable giving puts us to shame. We need to step up more in that department. Love your love of Quicken. That program, and MS Excel my favorite software packages ever.
I had never thought of making the future college costs a liability in Quicken until reading your article. Not being an accountant, this never occurred to me. That’s a great (and simple) idea. I am always looking at my NW number and then subtracting out what I expect will be spent in the future for college for 2 teenagers. My personal NW goal for FI is the the NW number I see now in Quicken plus what is expected to spent on college. I have actually worried about the psychological damage that will be done to me seeing that NW drop so significantly during the college years after watching it rise for so many years and somewhat thinking of the whole pile as “my money”. Setting college expense aside from the NW calculation as a liability now would be a good way of addressing that earlier! I may do that thanks to this article. I also like to do the sort of handicapping you do. When forecasting i do some worst case planning, exaggerating expenses and minimizing earnings assumptions a bit. Its a good factor of safety in planning. As usual – good reading!
Reply
Lin says
December 18, 2019 at 9:05 am
Dang…just looking at this teaches me that we spend WAY too much. Hello austerity, 2020. Thanks for a great article.
Reply
steveark says
December 18, 2019 at 9:43 am
You might be surprised at how much you could make. Since I retired at 60 four years ago I’ve been offered several jobs ranging from $200,000 to $1.2 Million to go back to a 9 to 5, that I never solicited. If I was out on the market looking I am sure I could get many more offers. They have come through professional headhunters that know me and I turned them all down. But the point is I have been offered three times what I used to make in my best year to come out of retirement. It depends on how well known you were in the sector you formerly operated in but some companies are desperate for experienced talent.
Reply
DeeFuller says
December 18, 2019 at 10:34 am
Wonderful article! My DH and I are living proof it only takes about a decade, especially if you’re not starting from zero. We got our financial act together later in life, we are currently 47 and 53, and finished paying off our consumer debt in the first quarter of 2015. We have two children, I work part-time, and DH has a high income.
We max out his 401k plus the over 50 catch-up (prior to our money makeover we never put more than 5% which is the max the company would match), I use my part-time income to pay down the mortgage (treating it like a 15 year, only 8 more years to go) and for vacations, and starting in 2020 we’ll be able to add more to our taxable account as well. We are getting very close to millionaire-next-door status (despite our children trying to bleed us dry).
DH has a pension that will cover our expenses in retirement. We’ll use our investment accounts if he opts for early retirement at 60 until he is eligible to receive payments from his pension.
Reply
Mike H says
December 19, 2019 at 12:01 am
Thank you ESI for the great article and inspiring website! We are pushing for #FastFI, here are some general numbers:
12/18/19 NW $752,000. (320,000 home equity, $167,000 IRA, $230,000 Non IRA, $30,000 emergency fund, $5,000 cash). Zero debt besides the mortgage.
DW (46) 4th year teacher with a cash flowed paid off MS, Me (50) online retailer
Daughter (20) 3rd year Electrical Engineering seeking MS EE 6/2022. She is also Div I runner so she gets a small scholarship as well as scholastic scholarships due to her 3.8 GPA
Son (18) 1st year Computer Science seeking MS CS 6/2024. He is my young entrepreneur (started his second side hustle this year)
They live at home.
They paid cash for their cars with money they earned themselves. (<$2,000 each)
We lost their entire college fund account when the "safe" DRiP we were doing in Washington Mutual went belly up. That was a kick in the teeth I must say.
One of our top priorities is to cash flow college and instill in our kids to both live way below their means and stay out of consumer debt. They will not owe a dime when they finish with these high tech, marketable, degrees.
Because we are relatively older and somewhat uncertain in our careers, we are planning to throw everything we have at our home mortgage in 2020. Lord willing, we will pay off the remaining balance of $166,000 over a 12 month period starting 12/31/2019. Additionally, DW will max her ROTH and do $5000 in her 403B and I will max my ROTH catchup and contribute $18,000 to my SEP-IRA through my business. I also began taking retirement this year from a defined pension of $18,000/year net which helps a bit.
Beginning 1/1/2021, we will increase DWs 403B to the max ($18,000) and continue with the ROTH and SEP-IRA contributions. The remaining $90,000 or so will be invested in non-qualifying funds and we will do that for 4 years at which time we project to have an approximately $1.8 million nest egg by 12/31/2024. [Roughly $600,000 paid off home, $600,000 IRAs, $600,000 taxable.] I will likely employ something similar to Millionaire 146's investment strategy for the taxable money. The IRA money is professionally managed for now at 1.25%/year (ouch!)
At that point, DW quits and I hire her in my business and we work it together from home in between long-awaited rest, recuperation, and travel. Thank God for ESI posting so much detail about healthcare costs as that was a concern. It is less so now.
We have been living off of $2,400/month (not including tithe, mortgage, small vacation and gift sinking funds) so it is critical we continue this over the next 5 years.
#FastFI can be achieved if you work diligently, and patiently through the process. The struggle is real for many folks like us but the results are so sweet. Remember, never compare your situation to others you read about here or elsewhere. That may lead you to a bad place. Just try to have your best life possible.
Blessings from a SoCal family!
Reply
- Peter says
  December 19, 2019 at 3:10 am
  Time to amp up the income. Those are rookie numbers!
  You got this 👍👍👍
  Reply
  - Mike H says
    December 19, 2019 at 9:04 am
    Thank you Peter! We are doing just that in 2020. Hitching our 12 foot cargo trailer to our old Chevy truck and stuffing it full of inventory to sell at a variety of events. Hoping to increase income by $50,000.
    Reply
    - Peter says
      December 19, 2019 at 9:30 am
      Good for you man!!! 2020 is going to ROCK 🤝
      Reply
m says
December 19, 2019 at 3:41 am
Mike H –
I like your last comments, and it reminded me of this quote: “Comparison is the thief of joy.” from Teddy Roosevelt.
It seems like you have a great plan, and your kids seem like they’re getting well setup to start with a huge advantage: great marketable skills and no debt. To give that gift to your children is amazing in and of itself.
All the best.
Reply
- MMiguel says
  December 19, 2019 at 6:02 am
  “Comparison is the thief of joy.”
  Amen to that. I try to remind myself of this every single day. I live and work in a community where I routinely encounter (and count among our circle of friends and neighbors) folks vastly more successful, more wealthy, more powerful, and sometimes a bit younger than us. It can take some real self-reflection not to let that get to you and mess with your own sense of well-being.
  On the flip side of the coin, we have friends and family members who are just barely by, these folks look at us and clearly think we’re filthy rich.
  It’s human nature that we tend to compare ourselves with those who appear to be doing better than we are, and ignore the comparison to those who are doing worse (which in the ESI readership would probably be pretty much more than 95% of the population).
  Reply
Lola says
December 19, 2019 at 12:29 pm
Hi! First, I just want to say that I love your blog. It motivates me to stay committed to my journey to financial independence. I have a question unrelated to the topic. What are your thoughts on mortgage recasting? Interests on money market accounts are so low and I’m bearish on the stock market right now. I have an extra $25K that I want to invest in something and I was thinking of doing a mortgage recast. My Mortgage interest rate (30 year) is 4.25%. Regarding tax implications, I itemize my deductions and realize that I will lose some of that but I think it may be worth it. Kindly let me know your thoughts on this situation 😀
Reply
Arturs says
December 20, 2019 at 6:13 am
If someone is thinking of FI in 5 year time period or less. Then it is quite a bit more important to understand what the market is doing. How likely is for market to crash within current 5 years and recover with in your lifetime?
There is no one for all solution in investing. Do your research, pick what you want support and what is more likely to grow.
I would bet on services online and support OpenSource software/hardware, solar PV in sunny places, AI & automation solutions to improve efficiency.
P.S. Im not a financial advisor.
Reply
Millionaire73 says
December 24, 2019 at 8:10 am
Really enjoyed this article (find myself saying that about almost everyone) and while my story is similar to yours (hit 2M after 40 years) and have no doubt I could do it again (as still blessed with a lucrative career) the thought of having to do it would be painful on many levels which is probably one of the reasons I have allocated a larger portion of my networth (30%) than ever before to cash and CD’s (also think a stock market correction is coming).
Thanks again for all the great content in 2019 and hope you and family have a great holidays
M73
https://esimoney.com/millionaire-interview-73/
Reply